Question 1

A pollution tax lowers the price of the good or service produced by the polluting firm in a competitive market.

Accepted Answer

A pollution tax adds a cost to the production process for the polluting firm, which would increase the price of the good or service produced. The purpose of the tax is to incentivize the firm to reduce its pollution levels by internalizing the external costs imposed on society. However, the firm may still pass some or all of the tax onto the consumers by raising prices, depending on the level of competition in the market. Overall, a pollution tax does not necessarily lower the price of the good or service in a competitive market.

Question 2

When the government imposes a tax on a firm that generates external costs,the tax is
A) always borne entirely by the firm.
B) always borne entirely by the consumer.
C) usually borne by both the firm and the consumer.
D) borne only by the government.

Accepted Answer

When the government imposes a tax on a firm that generates external costs, the tax is usually borne by both the firm and the consumer. The idea behind the tax is to make the firm pay for the external costs associated with its production, which will increase the firm's costs and decrease its profitability. As a result, the firm may raise its prices to offset the additional costs, which will be borne by consumers. Therefore, both the firm and the consumer may bear the burden of the tax.

Question 3

A power plant is emitting nitrogen oxides,a contributing factor in acid rain and in urban smog.If the power plant is taxed on the emission of nitrogen oxides,we can expect the amount of energy produced by the power plant to decrease.

Accepted Answer

Taxing the power plant on the emission of nitrogen oxides will increase the cost of production, which could lead to a decrease in energy output as the power plant tries to reduce costs.

Question 4

In a market characterized by external benefits,the market equilibrium is not socially optimal.

Accepted Answer

In a market with external benefits, there are benefits that accrue to individuals or groups beyond the buyers and sellers in the market. Since the market only considers the private benefits and costs, the market equilibrium fails to consider the external benefits to society. Therefore, the market equilibrium is not socially optimal.

Question 5

The idea behind the pollution tax equal to the external cost per unit of pollution is to
A) increase the social benefit to be above the marginal cost.
B) internalize the externality.
C) allow the firm to evade external costs.
D) drive polluting firms out of developed countries.

Accepted Answer

The pollution tax is designed to internalize the externality, meaning that it includes the external costs of pollution as a cost to the firm producing it. This gives the firm an incentive to reduce its pollution levels, as it is now paying the full social cost of pollution. The goal is not to drive polluting firms out of developed countries, but rather to encourage all firms to adopt more socially responsible practices. The tax is set at the external cost per unit of pollution to ensure that the social benefit is greater than the marginal cost. Allowing firms to evade external costs would defeat the purpose of the tax.

Question 6

A tax or charge equal to the external cost per unit of pollution is called abatement.

Accepted Answer

Abatement refers to measures taken to reduce or eliminate pollution or other environmental harm. A tax or charge equal to the external cost per unit of pollution is called a Pigouvian tax. This tax aims to internalize the externalities of pollution by making polluters pay for the harm they cause.

Question 7

Taxes on a firm's external costs
A) are designed to encourage more production.
B) are meant to force some firms out of business.
C) are simply meant to force decision makers to consider the full costs of their actions.
D) are designed primarily as a way to raise money so that the government can compensate the victims of the spillover.

Accepted Answer

Taxes on a firm's external costs are meant to force decision makers to consider the full costs of their actions. It is a market-based solution to discourage firms from producing goods that generate negative externalities. The tax creates a cost for firms that is reflective of the true cost of their production, including the external costs imposed on society. This encourages the firm to reduce its negative impact on the environment or to invest in technology that reduces its pollution. The revenue generated from this tax can be used to compensate the victims of the spillovers or to fund environmental protection programs.

Question 8

A company earns $200,000 in profit.The total costs paid by the firm are $800,000.Production of the goods contaminates the river and small lakes,which reduces the profits of salmon fishermen by $90,000.The external cost to society of the company's production is
A) $90,000.
B) $110,000.
C) $200,000.
D) $600,000.

Accepted Answer

The external cost to society of the company's production is the negative impact it has on others not involved in the economic transaction, in this case, the $90,000 loss in profits for salmon fishermen due to contamination.

Question 9

Comment on the following statement: "When an external cost is present and a firm does not factor this cost into its decisions,the firm is likely to produce a level of output that is lower than the efficient level."

Accepted Answer

The answer of Comment on the following statement: "When an...

Question 10

In essence,a pollution tax places a price on the right to pollute.

Accepted Answer

A pollution tax assigns a cost to pollution, essentially placing a price on the right to pollute. This creates an economic incentive for polluters to reduce their emissions and invest in cleaner technologies.

Question 11

When the government taxes a firm that generates an external cost,the profit-maximizing firm will produce
A) more units of output than before the tax was imposed.
B) the same number of units of output as before the tax was imposed.
C) fewer units of output than before the tax was imposed.
D) either more or fewer units of output than before the tax was imposed.

Accepted Answer

When the government taxes a firm that generates an external cost, the cost of production increases, resulting in a decrease in the profit margin. To maximize profits, the firm will reduce the level of production to decrease the amount of the tax burden they have to bear. Therefore, the firm will produce fewer units of output than before the tax was imposed.

Question 12

If a tax is placed on the output of perfectly competitive firm that imposes external costs on society,the firm's marginal cost curve will shift ________ and the market supply curve will shift to the ________.
A) down; left
B) down; right
C) up; right
D) up; left

Accepted Answer

When a tax is placed on the output of a perfectly competitive firm that imposes external costs on society, the firm's marginal cost curve will shift upward by the amount of the tax. This is because the tax increases the cost of production for the firm. As a result, the market supply curve will shift to the left, since the firm will supply less output at each price level. Therefore, D is the correct choice.

Question 13

Recall the Application about how to wash carbon out of the air to answer the following question(s).
-Recall the Application.Assume a firm that produces CO₂ has a marginal cost of abatement of $45 per ton and faces a carbon tax of $35 per ton.If the cost of carbon washing is $25 per ton,the firm could save ________ per ton and emit ________ carbon into the atmosphere by using a carbon washing machine.
A) $20; less
B) $20; more
C) $10; less
D) $10; more

Accepted Answer

The firm saves $10 per ton by using carbon washing ($45 - $35 = $10) and emits less carbon because the cost of carbon washing ($25) is less than the marginal cost of abatement ($45).

Question 14

The study of external costs is a major concern of
A) labor economics.
B) international economics.
C) environmental economics.
D) macroeconomists.

Accepted Answer

The study of external costs or negative externalities, which refer to the costs that are not captured by the market and can be imposed on society or the environment, is a major concern of environmental economics. Labor economics is concerned with the behavior of workers, firms, and markets related to the employment and compensation of labor; international economics deals with trade, finance, and globalization issues; and macroeconomics deals with issues related to the aggregate economy, such as inflation, unemployment, and growth.

Question 15

The social cost of production is the sum of the private cost and external cost.

Accepted Answer

The social cost of production includes both the private cost paid by producers and the external cost imposed on society, such as pollution and other negative externalities.

Question 16

What role can the government play in correcting for external costs?

Accepted Answer

The answer of What role can the government play in...

Question 17

What is an external cost?

Accepted Answer

The answer of What is an external cost?...

Question 18

When will firms produce an output level that is above the socially efficient level?
A) when there are external costs of production equal to marginal benefits
B) when there are internal costs of production and firms do not have to account for them
C) when there are external costs of production and firms do not have to account for them
D) when there are external costs of production and firms have account for them

Accepted Answer

Firms will produce an output level above the socially efficient level when there are external costs of production and they do not have to account for them. This is because firms will not take into account the negative impact of their production on third parties, leading to a socially inefficient outcome.

Question 19

If the government taxes a firm that is generating an external cost,the price of the firm's product will ________ and output will ________.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase

Accepted Answer

By taxing a firm that is generating an external cost, the cost of production for the firm increases, leading to an increase in the price of the firm's product. This increase in price will discourage consumers from consuming the product, thus reducing the overall output of the firm. Therefore, the correct answer is A) increase in price of the firm's product, and a decrease in the overall output.

Question 20

For which of the following goods would the imposition of a tax most likely improve the efficiency of the market outcome?
A) the production of a good with external benefits
B) the production of a rival good with no external costs
C) the production of a good with external costs
D) the production of a public good

Accepted Answer

The production of a good with external costs leads to market failure because the producers do not consider the full social cost of production. By imposing a tax, the price increases and producers must internalize the external cost, resulting in a more efficient market outcome.

Quiz 16: External Costs and Environmental Policy

A pollution tax lowers the price of the good or service produced by the polluting firm in a competitive market.

When the government imposes a tax on a firm that generates external costs,the tax is

A power plant is emitting nitrogen oxides,a contributing factor in acid rain and in urban smog.If the power plant is taxed on the emission of nitrogen oxides,we can expect the amount of energy produced by the power plant to decrease.

In a market characterized by external benefits,the market equilibrium is not socially optimal.

The idea behind the pollution tax equal to the external cost per unit of pollution is to

A tax or charge equal to the external cost per unit of pollution is called abatement.

Taxes on a firm's external costs

A company earns $200,000 in profit.The total costs paid by the firm are $800,000.Production of the goods contaminates the river and small lakes,which reduces the profits of salmon fishermen by $90,000.The external cost to society of the company's production is

Comment on the following statement: "When an external cost is present and a firm does not factor this cost into its decisions,the firm is likely to produce a level of output that is lower than the efficient level."

In essence,a pollution tax places a price on the right to pollute.

When the government taxes a firm that generates an external cost,the profit-maximizing firm will produce

If a tax is placed on the output of perfectly competitive firm that imposes external costs on society,the firm's marginal cost curve will shift and the market supply curve will shift to the .

The study of external costs is a major concern of

The social cost of production is the sum of the private cost and external cost.

What role can the government play in correcting for external costs?

What is an external cost?

When will firms produce an output level that is above the socially efficient level?

If the government taxes a firm that is generating an external cost,the price of the firm's product will and output will .

For which of the following goods would the imposition of a tax most likely improve the efficiency of the market outcome?